Thanksgiving is right around the corner, which makes this a perfect time to talk about turkeys. No, not the kind that you devour at the traditional holiday dinner. Rather, transactions and strategies that once looked smart but have turned utterly fowl. The kind of thing that makes you say, “Boy, was that a turkey!”
Herewith, my turkey list for 2013, from both the public and private sectors.
In 2007 three of the smartest outfits on Wall Street — Goldman Sachs (GS), Kohlberg Kravis Roberts (KKR), and Texas Pacific Group — combined to pull off a $48 billion leveraged buyout of the former Texas Utilities, the biggest going-private transaction in the history of the world. Oops. The deal started going bad about two seconds after it closed because the price of natural gas fell, making TXU’s coal-fired plants less competitive. Even Warren Buffett got suckered into this turkey, buying $2 billion of beaten-down bonds and betting on a turnaround that never came. The company is now in bankruptcy talks. I especially love the grand new name the buyout barons gave TXU: Energy Future Holdings. Too bad they had no idea what the future held.
Boston Globe acquisition
The $1.028 billion cash and stock takeover of the Globe’s owner by the New York Times Co. (NYT) in 1993 is probably the worst newspaper purchase in history. And that’s saying something. In October, the Times unloaded the Globe and the Worcester (Mass.) Telegram & Gazette, which it bought for $296 million in cash in 2000, for a combined $70 million. That’s about 95% less than it paid. To add a drumstick, the Times Co. (as I’ve written before) failed to use a double horizontal dummy (love that name!) structure to do the Globe buyout, and as a result lost a $160 million tax deduction that it could have had. That makes Times Co.’s income tax bill about $60 million higher than it had to be. I take no special delight in tormenting the owner of the New York Times, a Fortune competitor. But I just can’t resist cackling about a turkey deal that involves a missing double dummy. Who could?
The bad Penney
Two really smart Wall Street guys, Bill Ackman of the Pershing Square hedge fund and Steve Roth of Vornado Realty Trust, bought tons of J.C. Penney (JCP) stock and got its board to hire Ron Johnson, the architect of Apple’s wildly successful retail operation, to run this archetypal Main Street company. Johnson famously decided to take the whole chain upscale all at once without doing any testing. He discovered what anyone who has spent more than three seconds in a JCP store could have told him: that selling underwear to bargain hunters isn’t the same as selling trendy, high-margin iWhatevers to buyers happy to pay full retail. Johnson got fired this year; Ackman and Roth took big losses. The company is now struggling to survive the turkey trio. Repeat after me: Wall Street isn’t Main Street.
The government shutdown, etc.
How many times do we have to revisit this show? Zealots utterly convinced that they’re right have hurt vulnerable people, disrupted legitimate federal functions, and come close to triggering a federal debt default that would have made the damage from Lehman Brothers’ bankruptcy look like a rounding error. Watching this show repeat itself is as excruciating as being trapped in a room with a Tea Party type who insists on reading Ayn Rand’s Atlas Shrugged aloud. Enough, already!
This is by far the biggest turkey of the year. We all know what’s happened since the site went live — sort of — on Oct. 1. But sooner or later, the government will get the website right. I suppose. Then we’ll have to deal with Obamacare itself. Gobble, gobble, gobble.
Okay, I’m flocked out. Have a great Thanksgiving. And may your investment portfolios — and lives — be turkey-free.